Portfolio Risk & Maximum Drawdown

Five 1%-risk positions in five semiconductor names ≈ one 5% bet on semis. Real portfolio risk = position risk × correlation. Cap total open risk (e.g. ≤5% across all positions) AND per-theme exposure. The pairs tool's correlation matrix mindset applies to your own book.

Recovery is nonlinear: −10% needs +11%; −30% needs +43%; −50% needs +100%. Beyond the math, deep drawdowns break decision-making — plans get abandoned at the bottom. Backtests here report max drawdown for exactly this reason: a strategy you'd abandon at its historical worst is a strategy you don't have.

Professionals cut size after loss streaks (half size after −5% month) and stand down entirely at defined pain thresholds. Deciding these rules NOW, calmly, is cheap insurance against deciding them mid-tilt.